BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION
5901 Green Valley Circle, Room 207
Culver City, California
REPORTER'S TRANSCRIPT
FEBRUARY 24, 2010
FINAL ACTIONS
A.M. SESSION
Reported by: Beverly D. Toms
No. CSR 1662
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2 P R E S E N T
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4 For the Board Betty Yee
of Equalization: Chair
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Jerome E. Horton
6 Vice-Chair
7 Bill Leonard
Member
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Michelle Steel
9 Member
10 Marcy Jo Mandel
Appearing for John
11 Chiang, State Controller
(per Government Code
12 Section 7.9)
13 Diane Olson
Chief, Board
14 Proceedings Division
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1 ITEM B9
2 Culver City, California
3 February 24, 2010
4 ---oOO---
5 MS. YEE: Let's move to the cases from earlier
6 today under submission.
7 MS. OLSON: The first one is B9, Sherry
8 Donnelly.
9 MS. YEE: Okay. We have item B9, Sherry
10 Donnelly before us, Members. Is there a motion?
11 MS. MANDEL: Move to sustain Franchise Tax
12 Board.
13 MS. YEE: Okay. Motion by Ms. Mandel to
14 sustain the Franchise Tax Board.
15 Is there a second?
16 MR. HORTON: Second.
17 MS. YEE: Second by Mr. Horton.
18 Discussion?
19 Hearing none, please call the roll.
20 MS. OLSON: Madam Chair.
21 MS. YEE: Aye.
22 MS. OLSON: Mr. Leonard.
23 MR. LEONARD: Aye.
24 MS. OLSON: Ms. Steel.
25 MS. STEEL: Aye.
26 MS. OLSON: Mr. Horton.
27 MR. HORTON: Aye.
28 MS. OLSON: Ms. Mandel.
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1 MS. MANDEL: Aye.
2 MS. OLSON: Motion carries.
3 ---oOo---
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1 ITEM B12.
2 MS. OLSON: Our next item is B12, Ian James
3 Johnston.
4 MS. YEE: Okay. We're on item B12, Ian --
5 MS. OLSON: Excuse me, I missed one. B10.
6 MS. YEE: B --
7 MS. MANDEL: Oh, we -- we did -- we did that.
8 MS. YEE: We actually dispensed with that, with
9 the motion to abate penalty but otherwise sustain the
10 Franchise Tax Board.
11 MS. OLSON: Okay. Thank you. Then it's B12,
12 Ian James Johnston.
13 MS. YEE: Okay. Item B12, Ian James Johnston,
14 is there a motion?
15 Let me move to sustain the Franchise Tax Board
16 and to impose a frivolous appeal penalty of $750.
17 MS. MANDEL: You want to split the motion
18 maybe?
19 MS. YEE: Okay. Move to sustain the Franchise
20 Tax Board.
21 MS. MANDEL: Okay.
22 MR. HORTON: Second.
23 MS. YEE: Okay. Motion by Yee to sustain the
24 Franchise Tax Board. Second by Mr. Horton.
25 MS. MANDEL: Okay. And that's the Franchise
26 Tax Board as revised, right?
27 MS. YEE: That's correct.
28 Okay. Without objection, that motion carries.
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1 And then I will also move the imposition of the
2 $750 frivolous appeal penalty. Is there --
3 MR. HORTON: Second
4 MS. YEE: -- second? Second by Mr. Horton.
5 Discussion?
6 MS. MANDEL: Yeah, I -- on -- I understand that
7 the -- the frivolous appeal penalty, you know, is --
8 it's -- it's broad. And, you know, the -- the arguments
9 in his appeal were really two-fold at one level. They
10 were really two-fold which, you know, we don't often get
11 a two-fold kind of case.
12 He wasn't going to file a return. But --
13 and -- and the reason, you know, I voted to sustain FTB
14 on the tax as they revised it to kick out the items that
15 they decided were not -- appears they decided were not
16 his items -- we didn't really discuss that, but they did
17 drop several of the interest, dividend and stock items.
18 But what Mr. Johnson was talking about sounded to me on
19 the -- he did make a bunch of arguments, but he sounded
20 as though without filing a return he was trying to make
21 a case for a deduc -- charitable deduction and he was
22 trying to make a case for business expenses.
23 Now, it didn't sound like those were going to
24 be above a standard deduction but -- based on what he
25 had, but he was trying to make that kind of case.
26 So, he's -- he's sort of -- he appealed and
27 said I didn't really have all that money and, you know,
28 FTB did what we want them to do even if people don't say
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1 things like that, they deleted the items that they found
2 shouldn't have been on his NPA and he made regular
3 arguments.
4 So, that's why I'm kind of torn about a
5 frivolous appeal penalty. His -- his tax for this year
6 was reduced from the 269 in the proposed assessment to
7 260, I believe, or 209.
8 MS. KELLY: 209, yes.
9 MS. MANDEL: 209. So, you know, the FTB -- so,
10 it's -- it's kind of hard because you want to not
11 encourage the other arguments and you don't want to
12 disincentify Franchise Tax Board from making appropriate
13 adjustments.
14 This is his first appeal that's come before the
15 Board on this and so my sort of, you know, ball's in the
16 air on the frivolous appeal penalty, ultimately I think,
17 you know, it's -- I started to try to think about, well,
18 if there wasn't a frivolous appeal penalty what would be
19 an appropriate amount considering all of the
20 circumstances, and since it was a first appeal
21 ultimately where I think I wound up was maybe just that
22 the decision letter that goes to him should be
23 explicit -- you know, repeat the thing about -- we have
24 some language that we use about making these kinds of --
25 the arguments that would be deemed frivolous.
26 So that was why I asked you to split the motion
27 because I just was very torn about the frivolous appeal
28 penalty in this particular case considering all of the
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1 circumstances and the amount at stake and -- and all of
2 that. But --
3 MS. YEE: Okay. I appreciate that, Ms. Mandel.
4 Thank you.
5 Other discussion related to the penalty? Mr.
6 Leonard.
7 MR. LEONARD: I was wondering, Madam Chair, if
8 we should sentence him to take a Common Law and Tax Law
9 class from Ben Miller in -- in lieu of a cash penalty.
10 You don't like that idea?
11 MS. YEE: Yeah, and I can appreciate this is
12 his first appeal but I think on balance hearing his
13 testimony I'm not sure that -- and you're right,
14 Ms. Mandel, I don't think we've seen a lot of cases
15 where, you know, he certainly was making a compelling
16 point with respect to his -- his time volunteered with
17 the radio station and -- and the expenses that he
18 incurred relative to his work.
19 But I'm not so sure that we want to be hearing
20 the same testimony if -- but and for any subsequent --
21 MR. LEONARD: Madam Chair --
22 MS. YEE: -- for another year. Yes, Mr.
23 Leonard.
24 MR. LEONARD: He gave me the same pause that I
25 think he gave Ms. Mandel, and that he -- he offered if
26 necessary to go look through pay stubs for withholding
27 that he -- he believed to have been taken out. He -- he
28 tried to document with his witnesses the -- the
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1 charitable work and the income level. I mean, it was
2 not the typical what we would call frivolous appeal. He
3 actually got around to the merits of -- of the appeal
4 even if he didn't exactly admit that he was the taxpayer
5 in question that was subject to the law.
6 Nevertheless, it was -- there was a mixture
7 there that we -- I haven't seen before. It -- I wish
8 he'd done more to carry it out because there might have
9 been an ability to work with FTB on -- on making sure
10 the -- a proper return was filed.
11 MS. YEE: Right. And I think its the issue of
12 not having filed a return and certainly I didn't get the
13 sense of there was any more willingness on his part to
14 file a return to even get to the issues Ms. Mandel has
15 addressed.
16 MR. LEONARD: Yeah. Perhaps I should have
17 asked that question on point and I didn't.
18 MS. YEE: Okay. We have a motion -- motion by
19 Yee, second by Mr. Horton, to impose a $750 frivolous
20 appeal penalty. Please call the roll.
21 MS. OLSON: Madam Chair.
22 MS. YEE: Aye.
23 MS. OLSON: Mr. Leonard.
24 MR. LEONARD: No.
25 MS. OLSON: Ms. Steel.
26 MS. STEEL: No.
27 MS. OLSON: Mr. Horton.
28 MR. HORTON: Aye.
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1 MS. OLSON: Ms. Mandel.
2 MS. MANDEL: No.
3 MS. OLSON: Motion fails.
4 MS. YEE: Okay. Is there a -- we will proceed
5 to the next matter.
6 MS. OLSON: Our next matter is C1a, Elizabeth
7 Wardley Kwong and C1b --
8 MS. MANDEL: Could -- I'm sorry. Could we -- I
9 know there wouldn't be normally an opposite motion on
10 that, but I would like the letter -- the decision letter
11 to indicate about making those -- about making frivolous
12 type arguments in the future. The standard language
13 that we have that -- that penalties --
14 MS. KELLY: We will include that.
15 MS. MANDEL: -- could be imposed. Whatever
16 your standard language is. Is that okay?
17 MS. YEE: That's fine. Thank you.
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1 REPORTER'S CERTIFICATE.
2
3 State of California )
4 ) ss
5 County of Sacramento )
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7 I, BEVERLY D. TOMS, Hearing Reporter for the
8 California State Board of Equalization certify that on
9 February 24, 2010 I recorded verbatim, in shorthand, to
10 the best of my ability, the proceedings in the
11 above-entitled hearing; that I transcribed the shorthand
12 writing into typewriting; and that the preceding 10
13 pages constitute a complete and accurate transcription
14 of the shorthand writing.
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16 Dated: March 2, 2010.
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20 ____________________________
21 BEVERLY D. TOMS
22 Hearing Reporter
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